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Edited Transcript of FNB.N earnings conference call or presentation 23-Jul-19 12:15pm GMT

Q2 2019 F.N.B. Corp Earnings Call

PITTSBURGH Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of F.N.B. Corp earnings conference call or presentation Tuesday, July 23, 2019 at 12:15:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gary Lee Guerrieri

F.N.B. Corporation - Chief Credit Officer

* Matthew J. Lazzaro

F.N.B. Corporation - Manager of IR

* Vincent J. Calabrese

F.N.B. Corporation - CFO

* Vincent J. Delie

F.N.B. Corporation - Chairman, President & CEO

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Conference Call Participants

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* Austin Lincoln Nicholas

Stephens Inc., Research Division - VP and Research Analyst

* Brian Joseph Martin

Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts

* Casey Haire

Jefferies LLC, Research Division - VP and Equity Analyst

* Collyn Bement Gilbert

Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst

* Frank Joseph Schiraldi

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research

* Jared David Wesley Shaw

Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst

* Michael Masters Young

SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst

* Russell Elliott Teasdale Gunther

D.A. Davidson & Co., Research Division - VP & Senior Research Analyst

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Presentation

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Operator [1]

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Welcome to the F.N.B. Corporation Second Quarter 2019 Earnings Call. (Operator Instructions) Please note, today's event is being recorded. I'd now like to turn the conference over to Matt Lazzaro, Manager of Investor Relations. Mr. Lazzaro, please begin.

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Matthew J. Lazzaro, F.N.B. Corporation - Manager of IR [2]

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Thank you. Good morning, everyone, and welcome to our earnings call. This conference call of F.N.B. Corporation and the reports it files with the Securities and Exchange Commission often contain forward-looking statements and non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for our reported results prepared in accordance with GAAP. Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release. Please refer to these non-GAAP financial measures and forward-looking statements disclosures contained in our earnings release, related presentation materials and our reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until July 30 and the webcast link will be posted to the About Us, Investor Relations & Shareholder Services section of our corporate website.

I'll now turn the call over to Vince Delie, Chairman, President and CEO.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [3]

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Thank you, Matt. Good morning, and welcome to our earnings call. Joining me this morning are Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer. Gary will discuss asset quality and Vince will review the financial results.

Today, I'll provide second quarter highlights, which reflect strong performance during the first half of the year, including an increased profitability from multiple business units. I'll then provide an update on our strategic objectives and open the call up for questions.

There are 3 important takeaways from our second quarter highlights. First, we continue to strengthen our capital position and drive enterprise value through tangible book value growth and strong returns on tangible common equity. Earnings per share was $0.29 on both an operating and reported basis and when considering expenses related to branch closures and a noncash charge of $1.3 million related to MSR impairment, earnings per share totaled $0.30.

When considering these adjustments, EPS rose 11% compared to the year ago quarter.

Second, this quarter's financial performance was driven by consistent operational execution with solid loan and deposit growth and record noninterest income. Highlights include growth in our capital markets fees, mortgage banking revenue, C&I portfolio and noninterest-bearing deposits. Our expansion markets within Washington, D.C. and the Carolinas have contributed nicely and we expect continued momentum throughout 2019.

During the second quarter, F.N.B. generated more than $2 million in syndications and interest rate derivative fee income from our new expansion markets. Those higher growth markets also contributed significantly to mortgage banking revenue growth, wealth management revenue and loan and deposit growth.

Lastly, we maintained favorable asset quality while growing and remixing the balance sheet in a competitive operating and challenging interest rate environment.

As you may recall, we pursued our expansion into the Southeast to provide sufficient asset growth opportunities to achieve our stated growth objectives, all while maintaining a favorable risk profile.

Additionally, our disposition of higher risk portfolios contributed to our solid credit performance. These actions will serve our shareholders well as we move through the credit cycle.

Tangible book value per share grew to $7.11. Return on tangible common equity and the efficiency ratio were, again, peer-leading with levels of more than 17% and 54%, respectively. The mix of the balance sheet continued to improve on an annualized linked-quarter basis as average total loans increased 7% and deposits grew 8%, which fully (inaudible) funding needs of the loan origination volume.

With solid performance across the footprint, the loan growth was driven by continued C&I growth of 20% annualized. On the funding side, we were able to hold the core margin relatively stable as we are focused on generating noninterest-bearing and transaction deposit growth.

Successful execution of these efforts is evident with 12% annualized growth in noninterest-bearing balances.

Our strategy to generate noninterest-bearing and transaction deposit growth is of the utmost importance, given the potential for margin pressure in the current interest rate environment.

Based on our growth in a number of key metro markets over the last 12 months, we expect to have meaningful market share gains across the footprint, particularly in a number of our newer markets when we -- when the comparable FDIC data is made available.

Total revenues increased 13% annualized compared to the first quarter with noninterest income increasing substantially, up 58% to a record high of $75 million.

Looking specifically at fee income, we drove record capital markets and mortgage banking revenues this quarter. Capital markets revenue were $10 million and mortgage banking results were nearly $8 million. Capital markets experienced a 64% growth rate compared to the last quarter due in large part to several new transactions in the syndications group, combined with another strong quarter for our derivatives business.

We are pleased with the solid traction they're gaining and we're confident this business unit will continue to produce strong contributions to our performance as we capitalize on our markets in the mid-Atlantic and Southeast.

Mortgage banking production increased 71% linked-quarter and we'll look to generate growth and gain on sale revenues to offset potential interest rate environment pressures and support overall revenue growth.

On the expense front, second quarter operating expenses were right in line with our expectations as we accomplished the majority of our stated goal to reach a $15 per hour minimum wage by the end of 2019. The increased salary expense is reflected in our core run rate.

These profitability levels resulted in strong internal capital generation, driving the TCE ratio to 7.32% and increasing tangible per share 14% over the last 12 months.

As you know, this has been a key focus for us in recent periods.

We were pleased with our ability to generate capital moving forward with added future flexibility now that we have a payout ratio of 42% for the first half of 2019.

Asset quality continued to trend very favorably as evidenced by continued solid performance and further improvement in a number of key asset quality metrics.

With that, I'll ask Gary to comment on credit quality. Gary?

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Gary Lee Guerrieri, F.N.B. Corporation - Chief Credit Officer [4]

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Thank you, Vince, and good morning, everyone. We finished up the first half of the year with our credit portfolio remaining very well positioned as the second quarter was highlighted by a number of trends and overall stable results.

On a GAAP basis, the level of delinquencies showed further improvement over the prior quarter to stand at 95 basis points.

Additionally, NPLs and OREO also trended favorably, down 3 bps to end June at 58 basis points.

Total net charge-offs were solid at 16 basis points annualized with the ending reserve for the quarter at 83 basis points (inaudible) to the quarterly results for the originated and acquired portfolios.

Looking first at the originated portfolio, delinquency ended the quarter at 66 basis points, up a few bps over the prior quarter with a long-term trend continuing to move in a positive direction. NPLs and OREO remain at a solid level of 61 basis points, which ticked up slightly on a linked-quarter basis but continues to remain well positioned over the last several quarters.

Originated net charge-offs for the second quarter were solid at $5.4 million or 11 basis points annualized and on a year-to-date basis, totaled $10.2 million, similarly reflecting a level of 11 bps. Provision expense for the quarter totaled $12.3 million and adequately covered net charge-offs and organic loan growth.

As Vince mentioned earlier, we expect the solid C&I activity that we have been experiencing to continue in the (inaudible) quarter as we are seeing contributions from across the entire footprint.

Turning next to the acquired portfolio, which totaled $3.5 billion at quarter end. The credit results were favorable and remain in line with our expectations.

Contractual delinquency continues to improve with a linked-quarter decrease of $13 million to end June at $88 million.

On a year-over-year basis, past dues have been reduced by $32 million, a 27% reduction since June of 2018.

The acquired reserve ended the quarter at $4.5 million and inclusive of the credit mark, the total loan portfolio remains adequately covered, reflecting a combined ending coverage position of 1.29%.

In summary, we finished the first half of 2019 with solid credit results as our book remains favorably positioned heading into the second half of the year. We can attribute this consistent performance to our balanced approach in which we selectively seek out high-quality opportunities, (inaudible) credits consistently and proactively and strategically manage the risk profile of the portfolio.

These core credit principles are the foundation of our credit and lending decisioning processes that we employ throughout the footprint and across each line of business.

As we move through this later-stage economy, we are focused on the micro and macroeconomic trends to proactively manage risk and we'll continue to look for opportunities to better position our asset mix as they present themselves.

We remain steadfast and disciplined through a risk-focused approach that is ingrained in our culture, which continues to serve us well.

I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.

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Vincent J. Calabrese, F.N.B. Corporation - CFO [5]

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Thanks, Gary. Good morning, everyone. Today, I will discuss our financial results and provide an update on our outlook for the rest of the year.

As you can see on Slide 3, second quarter operating EPS totaled $0.29 as we continued our great start to the year. The quarter fee (inaudible) especially on the commercial side and we continue to build capital with the TCE ratio increasing 17 basis points to end the quarter at $7.32.

Now let's look at the balance sheet for the quarter, starting on Slide 6. On a linked-quarter basis, average loan growth totaled $380 million or 7% annualized, including commercial loan growth of 8% and consumer loan growth of 4%.

Growth in the commercial book was led by strong annualized growth in the C&I portfolio of 20% while CRE increased 2% annualized. The consumer growth in the quarter was concentrated in residential mortgage, up 13%; and indirect auto, up 5%. While home equity balances continued to decline as we've seen across the industry. We were pleased with these results as we continue to see strong activity across our markets.

Turning to deposits. On a linked-quarter basis, average total deposits increased $454 million or 8% annualized, reflecting normal seasonal inflows and continued growth in households and commercial clients. The deposit growth was spread across categories, including growth of $176 million in noninterest-bearing; $143 million in interest-bearing demand deposits; and $126 million in time deposits. These results speak to our ability to continue to execute our customer acquisition strategy.

Looking at the income statement. Net interest income was essentially flat from the prior quarter. For the quarter, total purchase accounting accretion was $8.1 million with $7.5 million from incremental purchase accounting accretion and $600,000 from cash recoveries. This compares to a total of $9.5 million in the first quarter.

The linked-quarter decrease in margin also reflected the 2 basis points of net margin benefit recorded in the first quarter related to the retirement of debt facilities, which I discussed in detail on the last call.

Excluding purchase accounting and the sub debt activity benefit in the first quarter, the net interest margin decreased 2 basis points to 3.09% from 3.11%, a result we feel good about given the current rate environment.

Let's look now at noninterest income and expense on Slides 8 and 9. The increase in operating noninterest income of $8.8 million was largely driven by an outstanding quarter in capital markets, which reached a record level of $9.9 million including strong performances in swaps, international and syndications. We also enjoyed a very strong quarter in mortgage banking, which included a 71% increase in production volume compared to the first quarter. We continued to see growth in wealth management with 3.5% growth in trust services and 7.5% growth in securities, commissions and fees.

Turning to Slide 9. Operating expenses increased $7.6 million compared to the first quarter. The primary driver was an increase in personnel expense, which reflects our April 1 annual merit increases as well as commissions for revenue-generating activities and continued progress toward our commitment to bring our minimum wage up to $15 by the end of 2019.

(inaudible) expense seasonally increased $1.2 million and outside services increased $1.4 million due to the timing of charges such as annual director fees.

Now I'd like to turn to our guidance for the remainder of the year. Our growth in loans and deposits has been within our expectations from mid-to high single-digit growth and we continue to feel confident in those targets.

As you may recall, in January, we expected full year net interest income to grow low single digits compared to 2018. As we sit here today, we expect net interest income to end up closer to flat given that we had 2 hikes in our guidance and the forward curve is now calling for 2 cuts.

As you all know, the outlook for interest rates has been volatile and the shape of the yield curve isn't helping the banking industry. While we are not as interest rate-sensitive as most banks, we are still impacted by the inverted curve and our net interest margin has seen some slight compression.

We are confident in our ability to organically grow core deposits as we have demonstrated mid to high single-digit growth even with closing 46 locations since last [June].

We are tracking in line with our expectations for noninterest income to grow in the [low single digit] and for noninterest expense to be flat to down 2%.

We now also expect provision expense to be in the $55 million to $65 million range rather than $65 million to $75 million, given that our asset quality remains at very favorable levels. Our expectations for the effective tax rate remain around 18%.

Finally, I'll give an update on CECL. (inaudible) on the necessary steps to prepare for January implementation (inaudible) focus of management and substantial progress has been made in (inaudible). Preliminary CECL estimates internally and expect to be prepared to share those externally as early as October.

Based on our preliminary analysis performed during the second quarter, using macro economic conditions expected at that time, we don't believe the Day 1 retained earnings impact would require us to raise capital.

Another key consideration to note is that CECL requires a balance sheet gross-up of existing acquired loans on Day 1. The remaining noncredit discount on our acquired loans will accrete into interest income in a similar fashion as purchase accounting does today.

Overall, we think it was an excellent first half of the year and believe we are well positioned to successfully navigate a challenging interest rate environment and upcoming CECL implementation.

Next, Vince will talk about some of our growth strategies and give an update on some 2019 initiatives.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [6]

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Thanks, Vince. As you may recall, we announced several major initiatives over the last year and I want to provide an update on the progress towards those objectives.

In commercial banking, our teams have had a strong first half of the year with overall commercial loan production ahead of our expectations and very strong second quarter commercial production in F.N.B.'s Baltimore, Washington, D.C., Cleveland, Pittsburgh and Charlotte regions.

As an update to our Carolina activity, we saw another quarter of growth in average commercial loans in North and South Carolina and have seen their pipelines continue to build for the second half of the year, particularly in Raleigh, Piedmont and Charleston, South Carolina.

For the Carolinas as a whole, they continued to be above their loan production expectations through the first half of the year. In the consumer bank, there's been tremendous progress towards ongoing optimization for both our online and physical delivery channels.

In the past, we have used data analytics to improve customer acquisition. The next phase is improving customer retention and gaining share of wallet. This includes a redesigned omni-channel online banking platform that provides a uniform experience across delivery channels.

We are targeting to roll out our new capabilities in the coming months and are excited about the new features and streamlined process we'll be able to offer our customers.

The new increased functionality will simplify the online experience and create a one-stop shopping digital experience that is seamless with customer experience at the branch. These investments should provide us with organic household growth opportunities and a comprehensive offer of products through the digital channel to deepen existing relationships. We intend to leverage our investments in data science and machine learning tools to more efficiently match clients with the appropriate products and services, prevent fraud and to manage risk.

Regarding our physical delivery channel, we continue to execute our long-standing ready program. Through our ongoing optimization program, we have consolidated 46 locations since last January and have added 2 de novo locations during that time. We expect the opening of several more de novo locations in the coming quarters and throughout 2020 with a focus on Charleston, South Carolina; Washington, D.C.; Northern Virginia; and Charlotte, North Carolina.

We have continued recruiting bankers very successfully across our footprint, notably attracting key talent to expand the teams in Cleveland and just recently announced the hiring of leadership and an exceptional team of bankers in Charleston, South Carolina.

We are already benefiting from significant opportunities in those markets, notably in Charleston, where our portfolio is up 20%.

Furthermore, on the employee front, I am pleased to share with you that F.N.B. was named a Best Place to Work in Pittsburgh for the ninth consecutive year and a Best Place to Work in Cleveland for the fourth consecutive year.

Our employees are the heart of our organization and I want to thank them for their hard work and dedication.

We are highly focused to better serve our constituencies by listening to their future needs and providing benefit for our customers, communities, fellow colleagues and creating greater shareholder value.

With that, I'll turn the call over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) .

And the first question comes from Jared Shaw with Wells Fargo Securities.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [2]

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If we -- it seems like the phone is skipping in and out, Jared. So if you need to ask a question twice, we're good with that or if you have any questions about our prepared remarks.

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Jared David Wesley Shaw, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [3]

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Okay. Yes, there was a couple of skips but I think we were able to keep up with the most of it. Maybe just starting with the margin and you talked about how the initial outlook for the year assumed continued rate hikes and now we're looking to see rate cuts. How should we be thinking about the margin here? And then sort of tied in with that, looking at the quarter-over-quarter decline in resi loans, I guess, how should we think about overall balance sheet positioning or repositioning from here heading into a rate cut environment?

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Vincent J. Calabrese, F.N.B. Corporation - CFO [4]

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Yes, I would say a few things on the margin. Our original guidance, as I mentioned, was low single-digit growth in net interest income. And remember, that was comparing to total GAAP for '18, which included Regency for 8 months. And also we had higher cash recoveries in the second quarter last year. So that was our reference point, just to make sure everybody kind of has that straight. With the 2 Fed increases that we had baked in, switching to cuts, we took a fresh look, we reforecasted the entire balance sheet income statement and look for a net interest income to be flattish, as I said, given the 2 rate cuts. If you look at the margin for the quarter, first quarter to second quarter, just to kind of clarify a few moving parts just to make sure everybody has the references straight. So the first quarter, we had a couple of basis points or $1.6 million benefit from a sub debt that we retired. So that, obviously, didn't repeat itself this quarter and then the purchase accounting benefit, if you look at it, just kind of first and second quarter, the normal accretion, as I recall it, declined $1.4 million, which was 2 basis points of margin change in the quarter. The purchase accounting accretion for this quarter, we think is a good run rate as you go into the next couple of quarters, so that should be pretty stable as you go forward. And then the other dynamic, we saw this quarter was -- as everybody did, the impact of lower 1-month LIBOR, which was leading the Fed cut. So that declined 21 basis points from the end of the year through June 30. And we have $7.5 billion of our total loans or almost 33% that are tied to 1-month LIBOR. (inaudible) we didn't get the corresponding benefit on the liability side. So that's another kind of dynamic that's [flowing] through there. Even with all that, to have 2 basis points of kind of core margin compression first and second quarter, we feel pretty good about it. And then as we look forward, growth in noninterest-bearing deposits continued strong growth in the loan side, particularly on the commercial side, look -- baking in the 2 Fed cuts and the impact it has on the liability side, we're looking for net interest income to be kind of flat year-over-year and the margin to be flattish also from kind of where the core would be for the current quarter.

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Jared David Wesley Shaw, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [5]

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Okay. I guess, shifting over to the loan portfolio. One, how severe were paydowns this quarter impacting sort of period end balances? And then again, looking at the decline in resi loans, is that something that you would consider maybe retaining more of now with the rate expectation?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [6]

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Before Gary or Vince provide additional color, I thought I would -- I'd make a comment. I think that the spot balance -- if you look at the spot balance, there were adjustments for loans that were moved into a salable category, so held for sale and we made the decision that there was a portfolio of jumbo mortgage loans that we ultimately will exit. We made that [decision] (inaudible) the pipeline in our mortgage company is significant. It's very strong. We took into consideration the margin on those loans and the impact on CECL. So we made the decision that we were going to exit that portfolio. That's why the spot balance, when you look at it, appears to be flat. It's actually in line with the average balance growth when you add that back. We have significant production going on in the commercial bank, particularly in the C&I space with some large corporate borrowers, which we expect fundings in the third quarter as well. So part of it is along the lines of the strategy that we mentioned before, changing the mix a little bit to benefit us as we move into a period where reserves are changing in the CECL environment as well as diversifying the portfolio. So Gary, I don't know if you want to add any more to that, I think that's what you're seeing.

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Gary Lee Guerrieri, F.N.B. Corporation - Chief Credit Officer [7]

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No, I think as we've talked in the past, we're constantly looking at the asset mix of the portfolio as Vince has mentioned. And we're going to position the portfolio for the benefit of the organization of both financially and from a risk standpoint as we look forward. So that's what really drove the positioning there. As Vince said, there were a pool of jumbo mortgages. We also sold some conforming mortgages or put -- moved them into the held-for-sale category as well. So again, just repositioning of the balance sheet as we look forward.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [8]

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Yes. And I'll -- I'd say that I think that we'll be, we -- Vince reaffirmed the guidance on loan growth. So we feel pretty confident that we can make these changes and not impact our growth trajectory.

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Jared David Wesley Shaw, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [9]

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Okay. And just to confirm, were those mortgages -- those were mortgages you had purchased from the warehouse sort of pipeline? Or given the sort of strength in the warehouse pipeline, your -- I mean, is that related at all to the warehouse side or was that -- were those originated mortgages?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [10]

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No, those were originated mortgage loans over time and as Gary indicated, the largest portion of them were jumbo mortgage loans that we felt they were single product households. So we looked at them and said, "Hey, we have a better use of our capital." We can get -- achieve higher returns on our capital. We have CECL coming. The margin was relatively low and we said, "Hey, let's take advantage of this opportunity with the interest rates coming down with the inversion and make some changes." I think it was a very good move for the shareholders and while again, we have to make difficult decisions, we could show outsized growth, but I think Gary has been -- done a great job of managing risk and it's evident in our credit metrics and we're going to continue to do that despite the pressure.

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Vincent J. Calabrese, F.N.B. Corporation - CFO [11]

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Yes, I would just add, Jared, that the quarter included, it was about $108 million of conforming mortgages that were sold during the quarter and then there's about $250 million of the jumbo mortgages that are in the held-for-sale bucket at the end of the quarter that we would expect to sell in the third quarter.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [12]

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Thanks, Vince.

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Jared David Wesley Shaw, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [13]

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Got it. And then just finally for me, on the capital markets income, the strong quarter there, is that you think a sustainable level with the investments you made in that platform?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [14]

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Well, I think this quarter was an exceptional quarter. As I mentioned in the prepared comments that we had several large syndication wins which were largely a result of either a larger balance sheet or our move into the Southeast or a combination of both. So -- and our expansion in D.C. So we had nearly $2 million in syndication fee income in the quarter. Do we expect that to continue? I mean, absolutely but it's lumpy. So I think we've built out that platform. We've started to win transactions as the left lead and I would expect us to periodically have those opportunities that we didn't have before. So again, having a larger balance sheet, moving into the new markets that we've entered gives us enough opportunities to create a fairly sizable business and we mentioned that early on when we announced the deal. So it's finally happening.

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Operator [15]

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And the next question comes from Casey Haire with Jefferies.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [16]

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A couple of more follow-ups on the NIM. So number one, on the deposit costs. How do you guys -- I mean, they held up pretty well on the quarter CD obviously, time deposits up. How do you expect those to trend in the back half of the year?

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Vincent J. Calabrese, F.N.B. Corporation - CFO [17]

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Well, I think that on the deposit side, it's been -- a lot of dynamics going on there. We did have some -- we've had some opportunities to lower CD rates, for instance, over the last -- really, the last 6 months. So we're actively, obviously, managing the deposit costs. The noninterest-bearing deposits that we've talked about a lot is obviously critical and we continue to have very nice growth in the DDAs there. So I think that's another element that's very important and we're going to continue to focus on that. I think we're going to manage the cost of deposits diligently like we do. Part of selling the mortgages that we talk about and putting in the held-for-sale is to create shelf space for all of the strong loan growth that we have coming, that we talk about. So continuing to fund the loan growth with deposits is critical. If you look at, for the current quarter, loans held for investment increased $380 million, was more than fully funded with $454 million increase in total deposits. So I think that kind of relationship is important. And then as we go ahead from here, we have our normal seasonal increase in municipal deposits. It happens kind of beginning of July through October, which typically generates additional $350 million to $400 million in balances that seasonally come in. So that's another kind of key component of it.

So it's just a constant process and we're going to manage it closely. We've definitely seen though some ability to reduce the increase, as you commented on, which has helped. But the total interest-bearing checking, which includes our money market in the first quarter went up 11 basis points. This quarter, it went up 4. So it's a lot of moving parts there, but just a lot of focus on it.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [18]

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Okay. And just switching to the loan side. We know what's floating rate within your portfolio, but what -- just in terms of origination yields, what -- where are they tracking today versus the 4.86% in the second quarter?

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Vincent J. Calabrese, F.N.B. Corporation - CFO [19]

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Well, the origination yields are very close to where they were last quarter. I mean, literally within a basis point. It does have some impact from LIBOR moving. There's about 10 basis points. If I look at the yield for the [mades] it's first quarter versus second quarter. So there's impact of LIBOR coming through there, but it's literally within a basis point for the new origination rates.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [20]

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Okay, so pretty close. All right. And then just lastly. Your -- the NIM guide of stable in the back half, does that assume any continued structural changes in the balance sheet, like, in the quarter? In the second quarter, you guys took the securities book down, which probably helped and then you also reduced the borrowings. So I'm just curious if you guys are feeling pretty good about deposit growth? Is borrowing reductions part of the plan here? Just trying to get a sense for what kind of structural contributions you're going to get to keep that NIM stable.

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Vincent J. Calabrese, F.N.B. Corporation - CFO [21]

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Well, I would say we don't have any other sales -- portfolio sales other than just kind of normal production planned for the rest of the year. So I mean, that's one component. The investment portfolio, the reinvestment rates are just not very attractive as you know. So given the strong loan growth, we've let that portfolio run down a little bit. Cash flow is about [$80] million a month. So we're still not fully reinvesting that. We're reinvesting a portion where we find opportunities in municipal investments, we're definitely investing in those. But as far as the balance sheet action from here, as we sit here today, we're still not fully reinvesting the investment portfolio. And then the other dynamics I talked about. Just normal business, growing the DDAs and the strong loan growth. But nothing else planned from a kind of balance sheet strategy, management perspective.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [22]

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And that includes borrowings as well?

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Vincent J. Calabrese, F.N.B. Corporation - CFO [23]

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Yes.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [24]

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Okay. All right. Just last one for me. Tax rate came in a little high this quarter. What's the expectation for the balance of the year?

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Vincent J. Calabrese, F.N.B. Corporation - CFO [25]

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Well, 18% is still the guide for the full year. We've talked about that we have business line going after some of these tax credit transactions. So there's some that we would expect to achieve as between the second half of the year. So that kind of brings you back down to overall effective tax rate of 18% for about -- for the full year.

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Operator [26]

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And the next question comes from Frank Schiraldi with Sandler O'Neill.

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Frank Joseph Schiraldi, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [27]

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Just a couple of questions. Just follow up, Vince, quick on the NIM. Just I think you mentioned that there's 2 rate cuts baked in now. Is that sort of July -- end of July, end of September time frame? Or is that not right?

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Vincent J. Calabrese, F.N.B. Corporation - CFO [28]

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Yes. That's the time that we have, Frank.

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Frank Joseph Schiraldi, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [29]

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Okay. And then just on fee income, obviously, the capital markets income was real strong and can be volatile, but -- and then mortgage banking can be as well, especially seasonally. But is that a reasonable run rate in the near term on mortgage banking revenues or did that reflect backlog in the quarter?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [30]

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I will tell you that the pipeline is extremely strong going into the third quarter. So we would expect it to be sustainable for 1 quarter or 1.5 quarters at least, until we start to run into the seasonal downturn. So it's very strong, Frank. On the capital markets front, that's extraordinarily lumpy. So I think we're having good success in the derivatives area early here, but it's too soon to tell. So I think we'll do well. I think it's a difficult quarter to repeat from a capital markets perspective because it was up 60-plus percent. So we'll be working to rebuild that for the future.

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Frank Joseph Schiraldi, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [31]

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Got you. Okay, and it just seems like the fee income guide, if I just look at my model, I'm at sort of mid-single-digit growth for the year. And pulling back on capital markets in the third quarter. Just wondering is there anything else lumpy in this quarter that you would pull out a run rate for the back half of the year?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [32]

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No, not really. We had good, solid performance pretty much up and down the business units. International is a little slower. This quarter, they have a lot of things coming. So that should benefit us a little bit. Other than that, I think everybody is performing pretty well. And insurance and wealth have good pipelines and they're fully staffed, particularly in the new markets. They're starting to generate some significant opportunities. So I would say it's steady and growing.

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Vincent J. Calabrese, F.N.B. Corporation - CFO [33]

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Yes, the only thing I would add is the service charges are seasonally higher second and third quarter, and they come down in the fourth quarter, Frank. So that's the only other dynamic I would add to that.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [34]

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Yes, there's seasonality in the service charges, yes.

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Frank Joseph Schiraldi, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [35]

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Okay. And then just finally, just one for Gary. This quarter, we've seen some weakness, some credit issues from a number of community banks and obviously, your credit remains pristine. And I just wondered if there's any weak patches you're seeing or types of collateral lending that you're steering clear of that you've seen get kind of frothy here recently?

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Gary Lee Guerrieri, F.N.B. Corporation - Chief Credit Officer [36]

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Frank, it's really been more of the same that we've been seeing across the industry. I will tell you, there's a lot of aggressive lending going on in the marketplace and that's not something that is new. I mean, it's been going on for quite a while now. Those are transactions that -- we're not going to change our structure and we just walk away from them and move to the next opportunity. Our bankers realize that and they support that. So we're very focused on the consistency in how we do business and how we underwrite and the portfolio continues to be positioned very well at this point and we like where we're at with it.

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Frank Joseph Schiraldi, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [37]

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Okay. But geographically as well, there's no pockets that you guys are starting to see get a little bit frothier than others and starting to pull back from?

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Gary Lee Guerrieri, F.N.B. Corporation - Chief Credit Officer [38]

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No, we really have not (inaudible) [weakness] that we [believe] across all the markets.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [39]

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Yes. I think, Frank, when you think about our thesis on why we expanded, one of the reasons, as I mentioned in my comments, was to diversify geographically. So we weren't reliant on a single market or a single asset class and we live by that. We're in the risk management business. I've said we've made hard decisions in the face of growth to limit risk and that's not easy to do. So I think the credit metrics that we have are a result of that action and having the diversification. So we target -- we don't target extraordinarily high growth rates. We're trying to play in the sweet spot from a credit perspective so that we can make good decisions and keep things moving through cycles. And that -- Gary said that repeatedly, that's our philosophy. We're going to stand by it, so.

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Operator [40]

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And the next question comes from Michael Young with SunTrust.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [41]

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I was wondering, it did cut out on me. Could you just clarify again your fee income guidance and your provision guidance?

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Vincent J. Calabrese, F.N.B. Corporation - CFO [42]

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Sure. The fee income guidance, we didn't change. The provision is $55 million to $65 million. We had lowered that, Michael, from $65 million to $75 million given where we came in the first half of the year. So we brought the range down $10 million. And then the fee income is still kind of low single digits. Again, that compares to 2018, it includes Regency for 8 months. So if you kind of normalize for that, it's really kind of mid-single digits on an organic basis, apples-to-apples.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [43]

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Hey, Michael, I saw in your comment -- your early comment, there was a miss on the effective tax rate. Vince, do you want to comment?

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Vincent J. Calabrese, F.N.B. Corporation - CFO [44]

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Yes, I mentioned there that we had -- the full year is at 18%. So this quarter is higher than the full year, just reflective of the tax credits not happening yet, that's something that we're working on. Then we also had some impacts in the tax rate related to stock that did invest and then you kind of lose a tax deduction on that. So there was kind of reversal of tax benefit on that, that brought that number up a little bit higher than it would normally be. But the guide for the full year is at 18%.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [45]

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Yes, that's just to give you a little more color on what happened this quarter. That's all.

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Vincent J. Calabrese, F.N.B. Corporation - CFO [46]

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Yes. No, that's a good point.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [47]

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Okay. And maybe just as a quick follow-up on that. Should we expect higher tax credit amortization in future quarters as well? Would that push up expenses or anything like that?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [48]

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Not significantly.

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Vincent J. Calabrese, F.N.B. Corporation - CFO [49]

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Not significantly.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [50]

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Yes.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [51]

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Okay. And then my other question just goes back to kind of capital management. It sounds like you guys have a better feel now for the CECL impact going into next year. TCE is drifting up above 7%. Just kind of wanted to get some updated thoughts on how you're thinking about that relative to your stock valuation at this point?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [52]

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Yes. I think clearly, as we've said before, having a lower dividend payout ratio, being around that 42% area and understanding capital (inaudible) move through CECL are important components. I think that we run -- we believe a model with a lower risk profile, so we're able to operate with a more efficient capital levels. And I think as we move forward, our plan is not to build capital forever. I mean, we would return capital to the shareholders in some form. So either buying back shares or changing our dividend strategy as we move forward, assuming we can't invest that capital and provide higher returns. So it gives us options. And I know that wasn't great answer because I kind of covered every area we could do, but I think we didn't have that luxury in the past and it's a good place to be.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [53]

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Okay. But no shift on the kind of post-CECL environment in terms of your kind of targeted capital ratio that you guys want to maintain on a go-forward basis?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [54]

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I don't think we're prepared to answer that at this point. We have preliminary information. Obviously, things can change, right? Because there are economic factors that are pulled into that analysis. So we're -- our comments are based upon the environment as we sit today and the balance sheet mix.

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Vincent J. Calabrese, F.N.B. Corporation - CFO [55]

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Yes, we've talked about a 7% to 7.5% range is the operating range we're using today. So that's kind of where we stand. And then once CECL is fully disclosed and out, we'll kind of refresh everything at that point, obviously. But that's still a good operating range. And it's 7.32% now. To Vince's point, as we move forward, there's flexibility we didn't have in the past.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [56]

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Those are great questions, and I think we'll be able to answer them a little better as we -- into the next couple of quarters here.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [57]

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Okay. And one last one for me, if I could. Just happy to hear about the omni-channel rollout. Is there any direct expense related to kind of rolling that out that wouldn't be capitalized? So will we see any jump there or conversely, I mean, should we expect any additional expense saves as that gets rolled out and implemented over the next couple of quarters?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [58]

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Well, we -- some of it is already reflected in our run rate because it was a multiyear build in terms of technology investment. So some of it -- big chunk of it is already reflected in the CapEx spend of the past. There's some coming, but it's not significant for that specific area. There's other technology investment that's going on within the company. We, obviously, take a step back, as we have through the last few years and invest in our company, so that we compete -- can compete more effectively. I think if you look at the demand/deposit growth that we've had, that's really an outlier. That can be highly attributable to our desire to provide a more robust product set to consumers, both business and consumer clients. So I -- those are linked together. Our ability to take cost out by consolidating branch locations is directly linked and having success with a lower attrition rate is directly linked to those investments in technology. So we're balancing that. There's no significant build related to the omni-channel build-out. There is an expense associated with it, but it's not huge going forward. There are other things that we are looking at that could potentially help us from an efficiency perspective or from a risk management perspective that have offsets.

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Vincent J. Calabrese, F.N.B. Corporation - CFO [59]

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Yes, and I would add. As you know, we're very disciplined in how we manage the overall income statement and expenses and we'll continue to have opportunities where we're looking at vendor relationships. Our focus is generating positive operating leverage year in and year out. So it's our job to find ways to kind of reduce cost in some areas, generate additional revenue and be able to cover those things and then some.

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Operator [60]

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And the next question comes from Austin Nicholas with Stephens.

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Austin Lincoln Nicholas, Stephens Inc., Research Division - VP and Research Analyst [61]

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Maybe just to dovetail on that capital question. Given the TCE ratios continuing to move up. Can you maybe just remind us what the message is on M&A? It's been 3 years ago. I think this week since your announcement of Yadkin back in 2016. So any comments on how you'd look at M&A given where your capital position is today?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [62]

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Yes, I can comment on that. I think it's also been 10 years since Vince became CFO, right? And I became President of the bank. So we're right in that sweet spot. And I think that we've now learned enough, we're gray enough that we have learned great lessons. And I think that the opportunity here is to benefit from what we've built and we're not out -- given the market conditions, the uncertainty with CECL, we're not out looking to do acquisitions at this point. We are solely focused on driving tangible book value growth, elevating our capital ratios so we have more flexibility and working to truly benefit the shareholders in every way we can. So that's -- there's been a keen focus on expense cuts. We've done significant branch consolidation. We continue to invest in the company because I think to extract value in the long run, we have to keep investing, and I think Gary has been extraordinarily disciplined in terms of balancing growth with disposition of assets and remixing the balance sheet. So all of that pays dividends for our shareholders in the long run and our capital strategy as we move forward is not going to change. We do not need to have extraordinarily high capital ratios given our business model and our goal is to return capital to the shareholders if it's not being deployed with high returns. That's the goal.

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Vincent J. Calabrese, F.N.B. Corporation - CFO [63]

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And we've been able to achieve geographic expansion through the de novo strategy we've talked about. So that's how we've expanded into some newer markets, choosing that avenue as opposed to the acquisition route.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [64]

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And our de novo strategy is working very well for us, both with the loan production offices that we have and the branches that we're -- markets -- new markets we're expanding into to fill in the gap. So we're going to play that out for a little while, see how that goes and build our own customer base.

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Austin Lincoln Nicholas, Stephens Inc., Research Division - VP and Research Analyst [65]

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That's really helpful. And then maybe just on the expense side. As you think about that de novo strategy paired with the ability to continue to consolidate branches, is it fair to say that the -- at least the occupancy growth number can be -- could be relatively -- will not be outsized given the de novo strategy because you will continue to rightsize your other branches at the same time that it seems like you've been doing over the last few quarters?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [66]

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It shouldn't be, but it's not an equal trade off. A new de novo location is typically, Barry's coming to me, asking me to pay a lot more because we want to be in Position A. If we're going to make that investment, we want to make a good investment in a location. So typically, there's more expense associated with opening a de novo branch, and I don't think that's unique to F.N.B. I think others experience the same issue versus closing one branch. So it's not a one-for-one typically because you're closing branches that aren't performing and they're not always in the best location. So -- but I would say that our ability to manage occupancy expenses we move forward will be reasonable given the de novo expansion. The footprint of those new branches is smaller, they're more technology-oriented, the business model is a lot different today. So there's fewer people in those branches because we deploy ITLs and other technology. So I think that there's great opportunity...

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Vincent J. Calabrese, F.N.B. Corporation - CFO [67]

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Plus we have the scale.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [68]

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For us. Yes, we have the scale we didn't have historically. So great opportunity for us to move into higher growth markets.

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Austin Lincoln Nicholas, Stephens Inc., Research Division - VP and Research Analyst [69]

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Yes, that's helpful. And then maybe just trying to square some of the margin comments with the NII guide. Just on the accretion, it sounded like expectation is for us to remain in that $8 million a quarter accretion level in the back half -- accretion plus excess cash recoveries?

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Vincent J. Calabrese, F.N.B. Corporation - CFO [70]

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Yes, I mean, the incremental component of that was $7.5 million. So that feels like a good run rate for the rest of the year. The cash recoveries have been kind of around that level. They move around a little bit. Last couple of quarters, it's been a basis point. So that may move a little bit, but the $7.5 million is kind of a good run rate and in total, the cash recoveries are the low numbers. So probably around those levels is reasonable, too, for the rest of the year.

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Operator [71]

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And the next question comes from Collyn Gilbert with KBW.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [72]

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Most of the things that I had have been covered. Just really quickly, just following up on the accretion comment. So Vince, the $7,500 or $7.5 million holding at that level for this year. Do you have any thoughts as to how you think that's going to trend in 2020?

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Vincent J. Calabrese, F.N.B. Corporation - CFO [73]

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No. I mean, we'll include that, Collyn, right, when we do our January guidance. I would say, today, pre-CECL, the $7.5 million I'm referencing is kind of the normal accretion the next couple of quarters feels like a reasonable level, a good run rate to use. I think in my prepared remarks, I commented that even in post-CECL, there's still accretion that will be recorded related to the acquired loans. The way the accounting works for that. And we'll obviously give you those numbers in January, but I think the words I used was in a similar fashion to the way we do it today. So there's still accretion that will occur post-CECL and we'll quantify that come January.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [74]

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And I think that was a good question. Is that what you were thinking, Collyn, relative to the changes on the reserves?

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [75]

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Yes, for CECL. Yes, and then just a pattern of -- I mean, I would assume that the pattern has slowed down or pay down to be similar in 2020. Okay. That's helpful. And then just one last thing on the growth, the loan growth. So obviously, you guys are talking about accelerating loan growth in the back half of the year to kind of keep in your mid to high single-digit loan growth targets. And the commercial trends have been good. Just on the resi side, just to make sure I'm hearing you, so the -- do you expect the resi mortgage growth to kind of return back to levels that you guys had been putting up in prior quarters?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [76]

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Yes.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [77]

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Okay. Okay. And with the commercial of the loan growth -- go ahead.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [78]

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Yes. Both the commercial pipeline and the mortgage pipeline are very strong, in particular moving into the third quarter. So I would say yes, to your -- if that's what you're asking about, the answer would be yes.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [79]

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Yes. Okay, okay.

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Vincent J. Calabrese, F.N.B. Corporation - CFO [80]

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And Collyn, just to put that into perspective, just to put a little bit (inaudible) production for the quarter was $679 million in residential mortgage. We sold about half of that, okay? So as we go forward, Vince talked about the pipeline, which indicates strong production in the third quarter also. So I would expect -- I agree with what Vince said, but just to give you some numbers around it as far as what we saw that's (inaudible).

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [81]

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I'm glad you're not disagreeing with me.

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Vincent J. Calabrese, F.N.B. Corporation - CFO [82]

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No, I agree with you. Put some numbers around.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [83]

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Yes. Okay, thank you. Thank you for putting math behind it.

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Operator [84]

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And the next question comes from Russell Gunther with D.A. Davidson.

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Russell Elliott Teasdale Gunther, D.A. Davidson & Co., Research Division - VP & Senior Research Analyst [85]

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Just quick follow-up on expenses. Wondering if you could size up for us what the annual merit contribution contributed to this quarter's results? And then just clarify for me whether the plan de novo as you talked about are incorporated in the expense guide for '19.

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Vincent J. Calabrese, F.N.B. Corporation - CFO [86]

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Sure. The merit increase was just under $2 million, it's like $1.8 million for the quarter. And that obviously becomes run rate effective April 1. And then yes, the de novos are baked into our guidance.

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Russell Elliott Teasdale Gunther, D.A. Davidson & Co., Research Division - VP & Senior Research Analyst [87]

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Okay. Great. And then just last one for me. Would you be able to kind of quantify for us what a 25 basis point cut would mean to the margin? Just trying to get a sense for the kind of one-and-done for a bit. What the impact might be, if any, to your NII guide for this year?

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Vincent J. Calabrese, F.N.B. Corporation - CFO [88]

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Well, I think what I -- what's baked into my guidance, Russell, is the 2 Fed cuts and I commented that I expect the margin to be kind of flattish from where it is this quarter. So I mean, that kind of tells you what the impact is of the 2 Fed cuts. You know what I mean?

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Operator [89]

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And the next question comes from Brian Martin with Janney Montgomery.

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Brian Joseph Martin, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [90]

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Most of my stuff was covered. Just Vince, just on the loan growth, just being -- it sounds particularly strong going into 3Q here. Can you just give a little color on just where in particular strength is? And if you're seeing any lumpiness there, something like you're talking about on the capital markets, some of the syndication fees being larger. Just kind of the -- is it sort of bit more lumpy? Is it pretty granular? Just kind of geographically and then granularity?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [91]

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Yes, I think overall it seems like it's fairly good across the board. When you look at the Carolinas, the Carolina markets in total are nearly equal to Baltimore, Cleveland and Pittsburgh in terms of pipeline, which is pretty good for us. I mean, that's a strong message. If you look at Raleigh specifically, who's been under pressure -- the portfolio's been under pressure with large CRE takeouts principally, their pipeline is the highest per loan officer in the company. So D.C. has a strong -- we've built out a team in Bethesda a couple of years ago, they've been doing extraordinarily well. Doug has been doing a great job there for us. So they've got good things happening. And then Pittsburgh has some large corporate opportunities funding up that are on -- the margin's not huge on them, but there's some volume associated with them and...

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Gary Lee Guerrieri, F.N.B. Corporation - Chief Credit Officer [92]

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Yes, it's really across the board, Brian, and that what's -- what feels really good (inaudible). It's coming out of all of the markets. Good C&I activity. C&I activity really ramped up everywhere in some of the markets that weren't producing it and the pipelines are strong.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [93]

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Yes, and the credit coming in seems reasonable. It's not -- we're not stretching to do things. So I think the strategy of having good bankers in all of those markets that have local connections and we've done a good job of managing that production. I think that's starting to pay off for us as we indicated a couple of years ago.

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Brian Joseph Martin, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [94]

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Yes, okay. And then just maybe Gary mentioned on the payoffs, somebody mentioned on the payoffs on the CRE side. I guess, is that your expectation that that continues? Are you seeing that -- the pace of that slow down at all so you see something...

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [95]

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We're running out of deals to -- we're running out of transactions to be taking out of, I think, Gary. I know, I mean ...

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Gary Lee Guerrieri, F.N.B. Corporation - Chief Credit Officer [96]

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I mean, it's kind of -- it's a little lumpy as we've talked about. I mean we had a few during the quarter. You're going to have that on a go-forward basis as long as the credit markets hold. Based on the booking of those assets, the completion of them and the lease up.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [97]

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Yes, we're not a prolific long-term lender. We tend to stay short. We finance the construction and then maybe do a little mini-perm bridging and takeout, and that's the business model. So I think that we'll always have payoffs, but we had an acceleration in payoffs there for a little bit. And I jokingly said, we're running out of transactions. I think we've originated a new batch. So that's a business that goes on. But there are periods, as Gary mentioned, where there's an acceleration in the takeout. And when you play in higher quality transactions, the ability to access capital outside the banking space is -- it's more liquid.

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Gary Lee Guerrieri, F.N.B. Corporation - Chief Credit Officer [98]

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So we will have more of those as we go forward, yes.

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Brian Joseph Martin, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [99]

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Yes. Okay, I was just trying to characterize if they were still very elevated or if it was more normal this quarter, I guess really ...

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [100]

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If you -- I think I might be right. Tell me if I'm right with this number. I think we're running at about $300 million in the acquired book.

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Vincent J. Calabrese, F.N.B. Corporation - CFO [101]

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Yes.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [102]

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Is that, right? In payoffs, paydown?

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Gary Lee Guerrieri, F.N.B. Corporation - Chief Credit Officer [103]

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That's right.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [104]

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So it's stabilized about that level.

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Brian Joseph Martin, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [105]

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Okay, that's perfect. And then just the last one for me, it was just on the strength in the noninterest-bearing this quarter. I mean, was there any -- I guess, significant -- anything of significance in there? Was it certain markets or just kind of across the board, just on that ...

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [106]

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It was -- I would say, it's 3 things. Number one, it's a focus on the consumer bank and we trained everybody up. So we spent a lot of money training everyone, how they interact with customers. So it's some training in the consumer bank and household growth associated with that training. The data analytics tools that we developed help us when we find a borrower that doesn't have a depository relationship with us, we're able to elevate those referrals through our CRM system using data analytics to help people, that's helped. Our ad campaigns, we stepped up a little bit and some of the promotions we ran not in the DDA category, but in other categories has helped strategically. So it's a combination. I think small business and middle market banking has contributed and we're still building balances so -- because we have seasonal inflows, not just in the municipal space, but there are compensating balances that are funded as we move into the third quarter with some larger corporate and middle market and small business borrowers. So we'll see. We should continue to see benefits from that.

So it's a combination of a number of strategies and I've mentioned before, I think having the branch delivery channel, some look at it as an anchor and they say, "You have all these branches." And then I think when it comes down to generating activity, that really plays in our favor. So our goal was to try to optimize that delivery channel without disrupting the ability to drive customers in the door, anyway.

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Brian Joseph Martin, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [107]

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Okay. Geographically, was there any particular market or just kind of across the board on the -- on that?

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [108]

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Yes, I mentioned in my prepared comments that we do an analysis. We look at the FDIC data. We don't have everybody else's growth number (inaudible) and when we look at our own growth numbers, well over half of the markets have had pretty sizable increases in deposits. So that should show well when the overall analysis is done because when you look at a multiyear period, having those increases has led to market share gains. So we did that analysis, we looked at it. The Southeast, in particular, performed well again, which is -- there's a tailwind there because we -- better economies and population growth, people moving into those markets. So that has helped us. And I think we've been able to hold on or grow in markets that aren't growing as fast. So that -- all of that, in combination, helps us and I think it produces a good result in terms of noninterest-bearing deposit growth.

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Operator [109]

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And as there are no more questions at the present time, I would like to return the floor to management for any closing comments.

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Vincent J. Delie, F.N.B. Corporation - Chairman, President & CEO [110]

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First of all, I'd like to thank everybody for the time. A lot of great questions today. I'm very excited about the first 2 quarters of the year. I think we've done exceptionally well, and I'd like to congratulate our team across the company in all 10 of the markets that we manage. Everybody has done a spectacular job, and I couldn't be prouder. So thank you.

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Operator [111]

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Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.